Alberta’s electricity generators would continue to be paid only for the electricity they produce, rather than both production and capacity, under a UCP government bill tabled Thursday that seeks to scrap a planned overhaul of the system.
If passed, Bill 18, the Electricity Statutes (Capacity Market Termination) Amendment Act, would cancel the former NDP government’s plan to shift the province’s electricity market system to a capacity market from an energy-only market by 2021.
In a capacity market, electricity generators are paid for the electricity they produce as well as their capacity to produce, which guards against power shortages. Private power generators are paid through a mix of competitively auctioned contracts.
An energy-only system pays companies only for the electricity they generate, based on the wholesale price of energy. Companies can decide where their facilities are located and the type of energy they wish to produce. Alberta has operated an energy-only market since 1996.
Many governments have successfully switched to capacity markets, but critics say if the transition is not well executed it can result in both too much supply and higher prices.
But those who advocate for a capacity market point out that because Alberta’s energy-only system is dependent on market forces, prices can fluctuate wildly. There are also concerns about the stability of supply.
Bill 18 does not address the consumer price cap of 6.8 cents per kilowatt-hour implemented by the former NDP government in 2017.
Worries of supply instability prompted planned shift
In November 2016, the former NDP government announced the province would shift to a capacity market.
The NDP made the decision based on advice from the Alberta Electric System Operator (AESO), the not-for-profit entity that operates the province’s power grid. Under the planned capacity system, the AESO would plan, approve, and administer the contracts with private power generators, ensuring the government buys enough capacity to meet expected demand.
The AESO became concerned Alberta wouldn’t have a stable source of electricity as the province closes coal-fired plants over the next several years and shifts to more renewable sources of energy. Stakeholder consultations yielded concerns that investors would be reluctant to invest in an energy-only system, the AESO said in an October 2016 report.
“The market will be unable to support increasing volumes of intermittent renewables and provide a healthy reserve margin to manage through a wide range of system conditions,” the report warned. “System reliability will be compromised.
“The current (energy-only market) structure will not ensure the investment in new generation that Alberta will need in the future.”
In its platform for this spring’s provincial election, the UCP promised to launch a 90-day review of Alberta’s electricity market system to see if it should remain an energy-only market. That review began in late June after the UCP formed government.
But in July, a little more than a month into the review, the government announced it would return to an energy-only market.
Asked Thursday why it cut short the review, the government said stakeholders had expressed overwhelming support for an energy-only market.
Bill 18 would remove the references to a capacity market from three existing pieces of legislation that govern the province’s electricity market. The AESO’s other functions would not be affected.